The franchising industry, the backbone behind brands like McDonald’s and Marriott, is holding its breath as it anticipates potential changes in U.S. regulations that govern its structure.
Last month, the Federal Trade Commission (FTC) concluded a public comment period triggered by its request for information on the franchising sector and its business practices. This move raised eyebrows, hinting at the possibility of increased regulation with far-reaching consequences for major players in the restaurant and hospitality sector. The FTC has not disclosed details on any potential changes or a timeline for such alterations.
The industry is now on edge, eagerly awaiting the outcome. The FTC disclosed to CNBC that it received a whopping 5,500 comments during the inquiry, signaling “broad interest in ensuring fairness in franchising.”
“We are thoroughly reviewing each comment and are assessing next steps. All options are on the table,” stated an FTC spokesperson. The agency’s earlier statement on the information request emphasized unraveling the impacts of the “unequal bargaining power inherent in [franchise] contracts on franchisees, workers, and consumers.”
Franchising is a significant contributor to the U.S. economy. The International Franchise Association, the leading advocate for the industry, notes that its membership spans over 300 business format categories, encompassing around 800,000 businesses that employ millions of workers.
The potential overhaul in franchise regulations aligns with the FTC’s broader oversight agenda, which includes proposed bans on noncompete clauses and evaluating whether such policies should extend to agreements between franchisors and franchisees. FTC Chair Lina Khan’s regulatory efforts have not spared corporate giants like Microsoft, Activision, Twitter, and Amazon.
Beyond the potential changes in FTC rules, the industry is also closely monitoring adjustments to joint employer rules and local regulations such as AB 1228 in California. These changes could shift more liability to parent companies of franchised businesses. As the industry braces for potential shifts, the coming months could redefine the landscape for franchisors and franchisees alike.
